Second quarterly (Oct-Dec FY22) report issued: SBP terms PPD vital tool for economic growth

KARACHI: The State Bank of Pakistan has termed the public-private dialogue (PPD) an important tool for economic growth and development and urged to enhance public-private collaboration in the planning and implementation of economic reforms.

The SBP also identified some gaps that need to be addressed to ensure that local Trade Organizations (TOs) fulfilled their intended objective of improving the business environment and contributing towards the country’s economic growth and development

The SBP has included a special section on trade organizations in Pakistan in its second quarterly (Oct-Dec FY22) report “The State of Pakistan’s Economy” issued on Friday.

The SBP special section titled “Role of Trade Organizations in Economic Growth and Development: Understanding the Dynamics in Pakistan,” shed light on the importance of effective public-private dialogue in planning and implementation of economic reforms, especially as government planning around the world has become participatory, collaborative and market-oriented in nature.

The special section underscores the need for evidence-based policy advocacy by TOs, an essential element of business reform initiative, and the need to provide market complementing services to their members, the revenues from which help TOs to become financially sustainable.

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The section also identifies some gaps that need to be addressed to ensure that local TOs fulfilled their intended objective of improving the business environment and contribute towards the country’s economic growth and development.

The section has also taken a look at the state of TOs in Pakistan, from the perspective of PPD and the services they offer to their members. Based in part on a survey, the key finding is that although TOs are engaged in PPD through limited arrangements, their contribution vis-à-vis evidence-based advocacy is limited and their range of services for members is not comprehensive.

According to SBP report, there is a need to increase public-private collaboration in the planning and implementation of different kinds of reforms. Regular PPD plays an important role for economic growth and development, especially as government planning around the world has become participatory, collaborative and market-oriented in nature, it added.

The SBP said that economic growth and transformation require interactive strategic cooperation between the public and private sectors; wherein collective action by chambers of commerce and trade organizations plays a constructive role. Research on emerging economies as well as developed economies shows that PPD has helped shape effective economic and sectoral policies, improved productivity, developed consensus on future pathways, and gained competitive advantages in products, markets, and innovation strategies.

Increasingly, leading global central banks also engage with TOs on various aspects of monetary policy. Collaboration with the private sector is necessary for governments because the private sector has better access to market signals: profitability; business cycles; business processes; global competition avenues of opportunities and challenges; etc.

The report said that effective and regular PPD, therefore, helps reduce policy uncertainty. However, regular exchange of information can only take place if formal mechanisms exist where the public and private sector engage with each other.

In Pakistan, the fact that the government wants to improve PPD and TOs are engaged by the public sector through a variety of mechanisms. The Ministry of Commerce consulted some TOs for the purpose of drafting Strategic Trade Policy Framework 2018-2023; the ministry had also sought policy suggestions from textile TOs to improve the sector’s competitiveness in early waves of Covid-19.

In addition, TOs are consulted by the Federal Board of Revenue on taxation affairs. The Planning Commission also recommends implementing access to finance programmes for SMEs in collaboration with the TOs.

Similarly, the leadership of TOs are ex-officio members of the boards of several government bodies, such as Punjab Board of Investment and Trade, and Board of Approval for special economic zones, whereas international donors also engage TOs as part of their technical sectoral policy assistance to federal and provincial governments.

The SBP Banking Services Corporation in partnership with various TOs has started working under a new mechanism in which, in addition to awareness sessions, it facilitates businesses and their employees to apply for bank loans under various concessional credit schemes.

A 2010 study showed that TOs in Pakistan had weak organizational capacity with the staff lacking necessary analytical skills; dormant committees initially formed to analyze and advocate policy reforms; and lack of consensus among leadership of TOs.

Recent diagnostic studies to this effect do not exist; nor do case studies of the contribution of leading TOs in Pakistan under the archetypal roles of TOs.

According to the SBP, TOs offer important market supporting and market complementing services that directly and indirectly benefit the public and private sectors. Under Pakistan Vision 2025, the government also identifies TOs as a catalyst of change with an important role in guiding government policy and economic programs.

However, in Pakistan, as preceding sections show, the purpose of existence of TOs is not being adequately fulfilled. In part, this is because the framework for PPD in the country is weak. Here, as mentioned earlier, the absence of joint advisory forums in general is worth noting, as is the fact that TOs are not given due representation at high-level government advisory councils such as the Economic Advisory Council and CPEC Business Council. This prevents the development of a vibrant PPD process as an institution.

Another reason why TOs in Pakistan are unable to play an effective role is the weak state of their organizational capabilities, which is a prerequisite for TOs to be able to engage in effective PPD and to offer various sorts of market complementing services to their members. As a result of these gaps, TOs have had a weak role in demanding reforms.

The SBP has presented seven recommendations intended as broad policy suggestions and bring to fore some points for deliberations between public and private sector stakeholders on how to build strong, effective, and sustainable TOs that can contribute to economic growth and development of Pakistan.

First, the government needs to set up institutional mechanisms for public private dialogue where the bureaucracy can effectively engage the private sector on matters relating to both short- and long-term economic policymaking and its implementation.

Second, an equally important step is to move towards evidence-based policymaking helped in part by demanding the evidence behind policy advocacy by TOs. To this end, the legal framework of TOs may be reassessed with the objective of nudging TOs to improve their research capacities needed for effective PPD.

Third, legal framework also needs be to looked at from the aspect of improvement in organization affairs of TOs.

Fourth, the government’s relationships with the private sector need to be legitimized through mechanisms of accountability and transparency.

Fifth, while compulsory membership of TOs may also help towards improving representation, the subject of advocacy forums by large businesses also requires attention.

Advocacy forums by large businesses, such as the PBC, the PTC and PAC formed by leading local conglomerates, business groups and multinational corporations, represent large scale industrial and financial sectors needed for driving economic growth and development.

Sixth, the private sector also needs to make TOs effective. TOs will need to explore various business models for financial sustainability since strong business associations should be self-funded and offer market complementing services alongside the PPD function.

Lastly, academia and think-tanks may be encouraged to conduct periodic impact assessments and case studies on the nature and extent of the contribution of various TOs to Pakistan’s economy.

Copyright Business Recorder, 2022